LONDON -(Dow Jones)- Global diversified miner Anglo American PLC (AAUK) said
Sunday it had received an approach from rival Xstrata PLC (XTA.LN), a tie-up
that could create a new top-tier mining giant.


The combination would create a group with vast holdings in copper, nickel,
coal, platinum and other metals and minerals - although there are many hurdles
to a deal.


A person familiar with the situation on Sunday said Anglo American was
weighing the offer seriously but the person noted the companies' very different
management styles and apparently limited cost savings from the merger.


"Anglo American is focused on shareholder value and will judge this proposal
against the value that Anglo could create on a stand-alone basis over the next
several years," the person said.


In a formal statement, Anglo American said: "It should be noted that this
situation is at a very preliminary stage and that there is no certainty that any
transaction will be forthcoming."


Anglo didn't immediately provide details of the approach but most analysts
expect that the deal would be an all-share merger or takeover.


The two companies are relatively similar in market size, with Anglo American's
market capitalization at Friday's close at GBP21.4 billion, and Xstrata's at
GBP20 billion.


Xstrata has yet to confirm it made the approach.


A merged company would leapfrog Rio Tinto PLC (RTP), which has a market cap
around GBP36.9 billion but still be short of heavyweight BHP Billiton Ltd (BHP),
which has a market cap around GBP78.2 billion.


Anglo and Xstrata already have joint ventures, and have circled each other in
the past.


The person familiar with the matter said Anglo looked closely at Xstrata
starting in December 2007, when Xstrata Chief Executive Mick Davis made comments
that seemingly put Xstrata into play.


"Anglo looked long and hard. They are very aware of Xstrata's portfolio and
position on the cost curve," the person said.


The person noted that Anglo decided against a bid, while Brazilian miner Vale
S.A. (VALE) proceeded with an offer for Xstrata that ultimately was not
successful.


The two companies have different styles, with Anglo Chief Executive Cynthia
Carroll running a more centralized operation, while Davis' main office is
relatively small and business units operate with greater autonomy.


But clearly Xstrata sees benefits from combining the companies, and not all
industry observers have dismissed the idea of an Anglo-Xstrata tie-up.


Nomura analyst Paul Cliff last month said the logic and timing of an all-share
offer by Xstrata for Anglo is "compelling" as both have fallen behind peers in
recent months.


Meanwhile, both miners have coal operations in Australia and South Africa, and
copper operations in Latin America that could offer savings. And some
shareholders have publicly said they are dissatisfied with Anglo's management.


"A combination of (Anglo) and (Xstrata) makes financial and strategic sense
and could create synergies of up to $750 million per annum," Citigroup analyst
Liam Fitzpatrick said last week in a research note.


"The combined entity would be a global leader in base metals, platinum,
ferrochrome and coal," Fitzpatrick said.


But the analyst added that a deal would have to overcome possible opposition
from the government in South Africa, where much of Anglo's mineral wealth lies.


"Political sensitivities in South Africa make a hostile deal unlikely," he
said.